This Should be Good
By Arnold Kling
A Debate Between Scott Sumner and John Cochrane. Sumner thinks that the Fed can hit a nominal GDP target if it wants to. When I heard Cochrane a while back, he was talking about the high rate of substitutability of financial assets, which might make monetary policy fairly ineffective. As you know, I tend to be more sympathetic with the latter view. If my schedule were more normal, I would have watched the video by now.
UPDATE: Scott has a blog post that sums up the debate.
I don’t think that the Fed can fine tune an inflation rate. By the same token, if it sets a price level target, it cannot fine tune the date at which it will achieve that target.
I think that inflation expectations move very slowly. Only in a regime of high inflation expectations does money have imperfect substitutability with other assets.